American Airlines (AAL) , in a striking reversal, said it will offer profit sharing to its employees, reversing CEO Doug Parker's long-standing belief that profit sharing is an unreliable way to compensate workers.
The announcement came Wednesday afternoon in a letter to employees from Parker and President Scott Kirby.
The reversal in policy seems to reflect Parker's recent effort to repair a culture that pilots have described as "toxic." At a March 8 investor presentation, Parker declared that airline management has changed now that the industry seems to have achieved a state of generally reliable profitability.
Today, "it's a race for the best employee relations," he said at that time. "Our goal is to make American the airline with the best employee relations in the airline business." Competitors Delta (DAL) and United Continental (UAL) both offer profit sharing.
The letter said American Airlines is establishing a profit-sharing program effective with 2016 annual earnings, which is considered to be extremely likely, although it is not assured.
"The program has already begun and will pay out in early 2017 based on what we earn in 2016," the letter said. "The plan will put 5% of every pre-tax dollar we earn into a profit-sharing pool." The money would be shared by about 118,000 American employees, not including upper management.
"Although we continue to believe the most effective way to increase compensation is through higher base pay, we recognize there is a team-building component to profit sharing," according to the letter. The letter quotes Elise Eberwein, executive vice president for people and communications, as saying "Profit sharing is a feeling, not a formula."
American shared profits at the same 5% rate prior to the 2013 merger with US Airways, but for approximately a decade it had no profits. "Although this 5% rate is lower than our peers, we plan to offer hourly pay rates higher than those same peers in the contracts we're negotiating now and in those to be negotiated in the future," the letter said.
The letter said management lacks the ability to increase unionized employees without union approval, but noted "Because we will not be asking for anything in return, we expect your union leaders will readily agree."
Bob Ross, president-elect of the Association of Professional Flight Attendants, called the move "a step in the right direction."
"I am pleased to see management is assigning value to employee morale and I look forward to building on this progress," Ross said in a prepared statement. He will take office next month.
Interim APFA President Marcus Gluth added, "I'm happy to see that management is finally recognizing everything flight attendants do to make American Airlines successful."